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In this post, Henry Powell (Associate) and Antoni Hajdon (Of Counsel) in the Real Estate Disputes team at CMS, comment on the case of Barton & Ors v Morris & Anor in place of Gwyn Jones (deceased) [2023] UKSC 3 – handed down on 25 January 2023.

The Supreme Court allowed the appeal by a majority given in the judgment of Lady Rose. The case considered whether payment of commission / renumeration fell due where the only term for payment that was clearly agreed between the parties was not fulfilled. The use of implied terms or unjust enrichment to fill the gaps in the parties’ agreement split the Supreme Court and the courts below.

Background

Mr Barton and his affiliates (“Barton”) had for some years tried to purchase a property, Nash House, London, from the seller, Foxpace Ltd (“Foxpace”). The property had proved a problem to sell. Contracts were first exchanged between Foxpace and Barton’s consortium in December 2012 for a price of £6.3 million but Foxpace rescinded the contract the following May. Then, in June 2013, the parties exchanged contracts for a second time at a price of £5.9 million but this was also rescinded by Foxpace when Barton had difficulty in proceeding. Barton had outlaid in lost deposits and costs the sum of £1.2 million.

Shortly after the second sale fell through the parties discussed how Barton might recover his wasted outlay. As Barton had found a potential new purchaser for the property, Western UK (Acton) Limited (“Western”), it was agreed with Foxpace that Barton would be paid £1.2m for introducing that purchaser to Foxpace provided the sale completed at a price of £6.5 million or more. There was no agreement on the level of renumeration if the sale completed at a lower price.

Documents were drawn up for the sale of the property to Western for a price of £6.5 million. However, in August 2013 Western became aware that the property was within an area safeguarded for the construction of the HS2 rail link. Western and Foxpace renegotiated the contract for sale at a price of £6 million. Contracts were exchanged in September 2013 and the sale completed at that lower price.

Barton maintained that Foxpace owed him £1.2 million. Foxpace went into liquidation in May 2017 and convened a meeting of creditors. Rejecting Barton’s proof of debt, Foxpace recorded the debt in the sum of £1.

Decisions of the lower courts

Barton sought relief in the High Court, claiming £1.2 million in contract or, alternatively, due to an unjust enrichment of Foxpace.

HHJ Pearce, sitting as High Court Judge, held that Barton was not entitled to any payment. There was no written agreement on which either party could rely; rather, the trial judge found a binding oral agreement. The oral agreement was that Barton would be paid £1.2 million for making the introduction if Western bought the property for at least £6.5 million. The agreement did not provide for what would happen if the sale completed for anything less than that sum. HHJ Pearce decided that, in those circumstances (i.e. the silence of the contract regarding a sale at less than £6.5 million), Foxpace was not contractually obliged to pay anything to Barton.

The claim in unjust enrichment was rejected on the basis that such a claim would undermine the contractual terms agreed between the parties, which was beyond the principle in Macdonald Dickens & Macklin (a firm) v Costello & Ors [2012] QB 244. However, HHJ Pearce assessed that, if his decision regarding unjust enrichment was overturned on appeal, the reasonable fee that would be payable to Barton was £435,000.

The Court of Appeal allowed Barton’s appeal. Asplin LJ, with whom Males LJ and Davis LJ concurred, held that the contract was silent as to what happened if the property sold for less than £6.5 million and so a claim in unjust enrichment would not undermine the express terms of the contract. Foxpace would be unjustly enriched if it received the benefit of the introduction to Western without paying Barton a reasonable fee and the court gave judgment on that basis for the sum assessed by HHJ Pearce.

The Court of Appeal also suggested in obiter comments that there was scope for the implication of a term into the contract for a reasonable fee to be paid to Barton if the property sold for less than £6.5 million.

Foxpace appealed to the Supreme Court. By that time, Foxpace was in liquidation as its sole director, Mr Gwyn Jones, had died – the appellants, Morris and another, were his personal representatives.

The Supreme Court’s findings

Lady Rose, with whom Lord Briggs and Lord Stephens agreed, gave the majority judgment allowing Foxpace’s appeal.

The oral agreement was a unilateral contract

The Supreme Court noted that HHJ Pearce had found as a matter of fact that there was an oral contract between Barton and Foxpace. The judge did not find that it was an express term of the agreement that Barton would be paid a fee if the property was sold for less than £6.5 million. Barton was under no obligation to make the introduction of Western to Foxpace. Nothing would have happened under the contract if he did not disclose the name or took no steps to involve Western in the transaction.

Accordingly, the parties had entered a unilateral contract and its express terms were that if the property did sell to Western for at least £6.5 million then Foxpace would be obliged to pay Barton £1.2 million.

A term should not be implied into the contract

Lady Rose looked at two bases on which terms can be implied into contracts, specifically if the court finds that there should be:

1. Terms implied as a matter of fact (e.g. those necessary to give business efficacy to the contract or so obvious that they go without saying).

In this case the majority in the Supreme Court considered that the contract worked without the implication of any terms to protect Barton in the event of the property selling for less than £6.5 million. Simply put, it was a risky bargain and the court should not interfere with the parties’ allocation of risk. Barton would recover a very large fee if the property sold for £6.5 million (or more) but nothing if it did not. It was not obvious what the parties would have agreed should happen in the event that the property sold for less than £6.5 million and it was not necessary to imply a term to give business efficacy to the contract.

2. Terms implied as a matter of law (e.g. the term is an incident of the particular kind of contract or there is a statutory interpolation of a term into an agreement).

Lady Rose noted that the fee of £1.2 million was several times the reasonable fee for the introduction and was calculated on the basis of recouping Barton’s losses from the two abortive purchases of the property that he had been involved in previously. This particular set of facts combined with the fact that Barton was not acting as an estate agent meant that this was not a contract of a particular type which warranted the implication of a term regarding renumeration.

Lady Rose also considered the Supply of Goods and Services Act 1982, s 15 (as amended by the Consumer Rights Act 2015, s 100(5)). The majority in the Supreme Court decided that section 15 did not imply a term into the contract predominantly because section 15 is directed to contracts where no consideration or price is fixed by the contract, however, the agreement between Barton and Foxpace did fix the consideration in the event of the target price being met or exceeded in the sale.

Unjust enrichment

Unjust enrichment has four elements, three of which were not in dispute in this case. Unsurprisingly, the disputed element was whether or not the enrichment was unjust. The unjust factor that Barton relied on was a failure of basis. The basis, on Barton’s case, was that the property would be sold for £6.5 million and that the parties both assumed this would happen. When that failed to happen (i.e. the sale completed at a lower price) the basis failed.

The majority in the Supreme Court were wary of allowing a remedy via unjust enrichment that would redistribute the risks which, they considered, the parties had provided for in their agreement. In rejecting the claim based on unjust enrichment the court had regard to many of the same factors it found relevant when rejecting the implication of a term as a matter of fact. In short, where a contract stipulates what circumstances must occur in order to impose a legal obligation to pay (thus allocating risk if that event does not occur) that necessarily excludes any obligation to pay in the absence of those circumstances (either an obligation to pay via an implied term or due to unjust enrichment).

Dissenting judgments

Interestingly, a fundamental reason why Lord Leggatt and Lord Burrows disagreed with the majority, is that they viewed the meaning of silence in the contract in a very different way.

Lady Rose considered that the silence of the contract, in relation to Barton’s renumeration where the sale completed for less than £6.5 million, meant that no obligation to pay should arise. Lord Leggatt and Lord Burrows considered that a term should be implied as a matter of law, that a reasonable renumeration should be paid, and that the silence in the contract on this point meant that such an implied term was not excluded by the parties.

Comment

Deciding where the balance between certainty and fairness lay in this case split the justices of the Supreme Court in addition to the lower courts on appeal. This judgment suggests the majority believe it should fall with the former – that a gap in a commercial contract was intended and so the law cannot assist the party who comes out of a bad deal badly.

This approach echoes the earlier decision in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anor (Rev 1) [2015] UKSC 72. The court will respect the bargain struck by the parties and will only imply a term into it if it is absolutely necessary, and only the least onerous term needed to achieve the objective of giving business efficacy to the deal if it does.

In the light of this decision, parties negotiating a deal may want to consider and agree what will happen if the primary plan does not come together.